919 F. 2d 146 - United States v. E McKinney

919 F2d 146 United States v. E McKinney

919 F.2d 146

Unpublished Disposition

NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.

UNITED STATES of America, Plaintiff-Appellee,v.Gentry E. McKINNEY, Defendant-Appellant.

Defendant, Gentry E. McKinney, challenges his conviction for structuring transactions to evade the currency reporting requirement of 31 U.S.C. Sec. 5313, in violation of 31 U.S.C. Secs. 5322 and 5324(3), and conspiracy to commit those offenses. He also challenges the computation of his offense level under the Sentencing Guidelines ("Guidelines") and the constitutionality of his sentence under the Guidelines. We affirm the conviction, but vacate the sentence and remand for resentencing.

BACKGROUND

3

From January 12 to April 25, 1988, McKinney deposited $1,524,384.44 to fourteen accounts at five banks. His co-defendant and son-in-law, Samuel Waller, deposited $448,816.97. McKinney engaged in transactions on seventy-three of the seventy-five banking days in that period. All of the transactions were structured so that the financial institution did not have to file the currency transaction report ("CTR") form for transactions over $10,000. McKinney indicated on numerous occasions that he did not want the CTR form to be filed. In addition, he paid property taxes totalling $99,620.89 to Josephine County and purchased real estate, property, and services totalling $520,690.08.

4

On April 24, 1988, Roger Wirth, Special Agent for the Internal Revenue Service ("IRS"), submitted a lengthy affidavit which summarized the transactions described above. Wirth sought and obtained ten warrants to search McKinney and Waller, various properties, and motor vehicles. In addition, Wirth sought and obtained six warrants for funds in various accounts. The warrants were served on April 26, 1988.

5

During the transactions, McKinney told his employees and the bankers a number of stories about the source of the funds. After the searches, McKinney sent a letter to the IRS. The letter, dated May 11, 1988, explained that his income was from California holdings, which were sold or exchanged.

6

McKinney and Waller were indicted on March 8, 1989. A superseding indictment charged McKinney with one count of conspiracy to obstruct the IRS in the collection of currency transaction data and to structure transactions to evade the reporting requirements of 31 U.S.C. Sec. 5313(a). In addition, he was charged with sixty-one counts of structuring in violation of 31 U.S.C. Secs. 5322 and 5324(3).

7

McKinney filed a motion to quash five of the warrants for overbreadth, which the court denied. He also filed a motion in limine to preclude, among other things, evidence concerning his explanations for the sources of the deposits. That motion was denied. He then filed a second motion in limine to preclude evidence of payments to entities that were not financial institutions required to file CTRs. That motion, too, was denied.

8

McKinney submitted a jury instruction which stated that the government had to prove that he purposefully intended to violate the law. The court rejected that instruction. As to Counts 2 through 62, the court instructed the jury that the government must prove that the defendant acted willfully. In addition, the court instructed:

9

The Government need not prove that the defendant, Gentry E. McKinney, was specifically aware of the existence of the law he is charged with breaking in this case, 31 U.S.C. Section 5324(3).

10

Nor must the Government prove that the defendant, Gentry E. McKinney, actually knew that structuring as I have defined it for you was itself unlawful. If you find that structuring occurred, and was knowingly and willfully engaged in by the defendant for the specific purpose of evading a reporting requirement that was known by the defendant to exist, that is sufficient.

11

He was convicted on all counts.

12

McKinney was subject to sentencing under the Sentencing Guidelines. The Pre-Sentence Report ("PSR") referred to an attached memorandum from IRS Special Agent Wirth. That memorandum detailed McKinney's personal and financial involvement with known drug traffickers. The PSR concluded those persons were closely associated with McKinney and Waller. In addition, the PSR concluded that McKinney "controlled and directed" Waller.

13

The PSR assigned McKinney a base offense level of thirteen, because he "structured transactions to evade reporting requirements." U.S.S.G. Sec. 2S1.3(a)(1)(A). The offense level was adjusted upwards five levels because McKinney "knew or believed that the funds were criminally derived property." U.S.S.G. Sec. 2S1.3(b)(1). The offense level was then adjusted upwards six points because the "value of the funds managed by Mr. McKinney totalled $2,593,782." Finally, the offense level was adjusted upwards two levels because McKinney was a leader in criminal activity. U.S.S.G. Sec. 3B1.1(c). The total offense level was 26.

14

McKinney objected to fixing the base offense level at thirteen, instead of five, pursuant to U.S.S.G. Sec. 2S1.3(a)(2), as well as to all of the upward adjustments. The court rejected these contentions, and sentenced him to sixty months' imprisonment, two years' supervised release, and a fine of $2,600,000. McKinney filed a timely notice of appeal. The district court had jurisdiction under 18 U.S.C. Sec. 3231. We have jurisdiction under 28 U.S.C. Sec. 1291 and 18 U.S.C. Sec. 3742.

DISCUSSION

15

A. Jury Instruction.

16

We review de novo whether jury instructions properly state the elements of an offense. United States v. Spillone, 879 F.2d 514, 525 (9th Cir.1989), cert. denied, 59 U.S.L.W. 3248, 3250 (U.S. Oct. 1, 1990) (Nos. 89-1924, 90-5149). McKinney contends that to prove a violation of 31 U.S.C. Secs. 5322 and 5324(3), the government must show that the defendant was (1) aware of his duty not to structure and (2) knowingly and intentionally violated his duty. We rejected that argument in United States v. Hoyland, 903 F.2d 1288, 1291-92 (9th Cir.1990), amended, No. 89-50253, slip op. 11271 (Sept. 14, 1990). The district court's jury instructions properly stated the elements of the offenses charged.

17

B. Search Warrants.

18

We review de novo the issue whether search warrants lack particularity. United States v. Spilotro, 800 F.2d 959, 963 (9th Cir.1986). Whether warrants are sufficiently precise depends upon (1) whether probable cause exists to seize all items of a particular type described in the warrants, (2) whether the warrants set objective standards to differentiate between items to be seized and those that may not be seized, and (3) whether the items to be seized could be described with greater particularity at the time the warrants were issued. Id.

19

First, there was probable cause to search for all of the items described in the warrant. The affidavit of Special Agent Wirth describes a lengthy series of transactions which would justify the belief that numerous documents existed to support the transactions. Second, the items were all related to the offenses of structuring or laundering funds, and a reference to structuring or money laundering limited the warrants. See United States v. Fannin, 817 F.2d 1379, 1383 (9th Cir.1987). Third, the items could not have been described with greater particularity. There was probable cause to believe that McKinney was involved in a large-scale money laundering operation. Moreover, it appeared that he had mixed the tainted cash into his various businesses and other transactions. Thus a wide-ranging search was supported by probable cause. See United States v. Offices Known as 50 State Distrib. Co., 708 F.2d 1371, 1374 (9th Cir.1983), cert. denied, 465 U.S. 1021, 104 S.Ct. 1272, 79 L.Ed.2d 677 (1984). Under all of these circumstances, the warrants were sufficiently particular.

20

C. Motions in Limine.

21

McKinney first claims that the district court erred when it allowed the prosecution to introduce evidence of his explanations for the source of the currency. The government claims that the explanations were evidence of the crime charged and, even if the explanations were evidence of "other crimes," the evidence was admissible under Fed.R.Evid. 404(b). We review de novo the determination that the acts at issue were "other crimes" and review for abuse of discretion the decision to admit evidence. United States v. Mundi, 892 F.2d 817, 820 (9th Cir.1989).

22

One of the overt acts of the conspiracy alleged was that McKinney had stated that the funds were rental payments from the tenants of his mobile home parks. Thus, this evidence was direct evidence of one of the crimes charged.

23

The remaining explanations were admissible under Fed.R.Evid. 404(b). The false explanations tended to show McKinney's mental state. that is, McKinney intended to cause the financial institutions to fail to report his transactions. His statements helped to carry out that design by misleading the financial institutions into believing that there was nothing irregular about the transactions.

24

Second, McKinney challenges the admission of his transactions with non-financial entities in the payment of property taxes and the purchase of property. Again, these acts were alleged in the indictment as overt acts. Those overt acts were related to the overall scheme to conceal transactions from the government. See United States v. Soliman, 813 F.2d 277, 279 (9th Cir.1987). It was not an abuse of discretion to admit those acts into evidence.

25

D. Sentencing.

26

The court reviews the district court's interpretation of the Guidelines de novo. United States v. Howard, 894 F.2d 1085, 1087 (9th Cir.1990). First, McKinney contends that the district court incorrectly imposed the burden of proof upon him to prove his entitlement to a base offense level lower than the one sought by the government.

27

This court has stated that "the government should bear the burden of proof for any fact that the sentencing court would find necessary to determine the base offense level. Since the government is initially invoking the court's power to incarcerate a person, it should bear the burden of proving the facts necessary to establish the base offense level." Howard, 894 F.2d at 1090. That burden is by a preponderance of the evidence. Id.

28

The district court's analysis was consistent with this analytical framework. The court first stated that the conduct described in U.S.S.G. Sec. 2S1.3(a)(1)(A) had been proven at trial. If the government proved that conduct beyond a reasonable doubt, then it must have proven that conduct by a preponderance of the evidence. It was only after holding that the conduct had been proven at trial that the district court held that McKinney had the burden to establish the lower offense level under U.S.S.G. Sec. 2S1.3(a)(2). That is, once the government had proven facts to support a particular offense level, McKinney at least had the burden of coming forward with evidence to show that a lower offense level applied to his situation. Id. He did not do so.

29

Second, McKinney challenges the five-level adjustment under U.S.S.G. Sec. 2S1.3(b)(1). The court found that McKinney knew or believed that the funds were criminally derived property. It cited the amount and method of packaging of the currency, McKinney's false explanations of the source, the failure to document income in 1988, and the cash investments from and associations with persons allegedly involved in drug activities. Given the factual support in Wirth's memorandum of October 24, 1989, the government sustained its burden of showing that the adjustment was warranted.

30

Third, McKinney challenges the upward adjustment by six levels pursuant to U.S.S.G. Sec. 2S1.3(b)(2). That provision states that, "If the base offense level is from [U.S.S.G. Sec. 2S1.3(a)(1) ] and the value of the funds exceeded $100,000, increase the offense level as specified in Sec. 2S1.1(b)(2)." The court interpreted "the funds" to mean all funds involved, whether or not the transaction involved a financial institution required to file CTRs. That is, the entire $2,593,782 figure was used, rather than the $1,524,384.44 involved in the bank transactions. We agree that the district court erred in this respect.

31

There is no reason to believe that U.S.S.G. Sec. 2S1.3(b)(2) does anything more than incorporate the schedule set forth in U.S.S.G. Sec. 2S1.1(b)(2) into the structuring Guideline itself. Therefore, for purposes of U.S.S.G. Sec. 2S1.3(b)(2), the word "funds" retains the definition in that Guideline, that is, funds involved in structuring transactions. The fact that the schedule itself is found in a Guideline dealing with laundering in general does not mean that the scope of the word "funds" should be expanded to all laundering activities when one incorporates the schedule into the structuring Guideline. That incorporation should be seen as no more than a convenience by which the Sentencing Commission avoided setting forth the schedule itself again and again. It was, therefore, improper to add the money involved in other transactions to the amounts involved in the structuring transactions.

32

Fourth, McKinney challenges the upward adjustment by two levels for his role in the offense. This court reviews the factual determination underlying that adjustment for clear error. E.g., United States v. Carvajal, 905 F.2d 1292, 1295-96 (9th Cir.1990). McKinney played a major role in the transactions, while Waller participated on a less frequent basis. More importantly, McKinney compensated Waller for Waller's activities, while there were no payments or credits from Waller to McKinney. Therefore, the adjustment was appropriate. See United States v. Sanchez, 908 F.2d 1443, 1447-48 (9th Cir.1990).

33

Fifth, McKinney argues that his sentence is unconstitutional because sentencing facts were adduced in violation of his sixth amendment right to jury trial, fifth amendment due process right to proof of guilt beyond a reasonable doubt, sixth amendment right to cross-examination, and fifth amendment right to indictment by grand jury. None of these arguments has merit. Proof of sentencing facts by a preponderance of the evidence and to a sentencing judge does not violate the fifth amendment nor does it violate the sixth amendment right to jury trial. McMillan v. Pennsylvania, 477 U.S. 79, 106 S.Ct. 2411, 91 L.Ed.2d 67 (1986). See Howard, 894 F.2d at 1090. Because McMillan applies, the cross-examination and indictment claims also fail. See also United States v. Fernandez-Vidana, 857 F.2d 673, 675 (9th Cir.1988).

CONCLUSION

34

We therefore AFFIRM McKinney's conviction. We VACATE his sentence and REMAND for resentencing.